AI Drafter 
TaxTMI 
TaxTMI 
2022 (5) TMI 352
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.....Act. For the assessment year 2009-2010, the return of income was filed on 30.09.2009 declaring total income of RS.9,64,84,050. The assessment was selected for scrutiny by issuing notice u/s 143(2) of the I.T.Act. During the course of assessment proceedings, the case was referred to the Transfer Pricing Officer (TPO) to determine the Arm's Length Price (ALP) of the international taxations entered by the assessee with its Associate Enterprises (AEs). The activities carried on by the assessee, the margins earned thereon and the TPO's calculation and the findings are as follows:- Transaction Assessee's margins Arm's length margin determined by TPO TPO's finding Software development support services Net operating margin (NPM) of 33.18 per cent. NPM of 24.32 percent Transactions established to be at arm's length. Management and administrative support services NPM of 10 per cent. NPM of less than 10 per cent -do- IT infrastructure support services NPM of 20 per cent. NPM of 25.03 per cent Transactions are within the 5 per cent tolerance range and hence accepted to be at arm's length. 2.1 However, the TPO made an adjustment amounting to R....
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....see and revenue has filed appeals before the Tribunal. We shall first adjudicate the assessee's appeal. IT(TP)A No.130/Bang/2014 (Assessee's appeal) 3. The grounds raised by the assessee are as follows:- "1. The assessment order dated January 02, 2014, passed by the learned Joint Commissioner of Income-tax, Large taxpayer unit, Bangalore ("the Ld AO") under section 143(3) read with section 144C( 13) of the Income-tax Act, 1961 ("the Act") is not in accordance with the law and is contrary to the facts and circumstances of the present case. Transfer Pricing adjustments 1.1. The Honourable DRP and the Ld TPO have erred in law and on the facts and circumstances of the case, by holding that the ALP of Royalty is NIL and adding back the entire amount of Rs 3.83 crores paid towards Royalty as an adjustment to ALP. 1.2. The Honourable DRP and the Ld TPO have erred in law and on facts in concluding that the' payment of royalty for the brand name owned by the AE was not justified without considering that its revenue of about Rs 130 crores out of a total revenue of Rs 433 crores was derived from non-AEs. 1.3. The Honourable DRP and the Ld....
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....ables to be deemed loan and levying interest is incorrect. 2.4. Without prejudice to the above, the Honourable DRP and the Ld AO 1 TPO have erred in law and on facts in benchmarking the outstanding trade receivables with interest receivable on loan transactions 2.5. The Ld AO 1 TPO have erred in law by not giving effect to the directions of the Honourable DRP despite the DRP explicitly ruling in its order that there should be any adjustment if the margins after adjustments for working capital differences are higher than the arm's length margin determined based on comparable company data 2.6. The Ld AOI TPO have erred in law in not giving effect to the order of the DRP, which action purports that the DRP should have itself examined the working capital adjustment and the mere direction to the Ld AOITPO to examine the workings amounted to a set aside without considering that it was only incidental to the DRP's explicit ruling that the adjustment should be deleted once the Appellant's margins after the working capital adjustment is higher than the margins of the comparable companies. 3.Other Transfer pricing related grounds 3.1. ....
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....sallowing the Mark to Market ("MTM") loss on account of forward contracts and options amounting to INR 684,273,980 holding the same as being notional loss which was contingent in nature- 5.2. The Ld AO and the honorable DRP have erred in law and on facts in holding that the Appellant had entered into speculative transactions and booked MTM losses without any basis and disregarding the fact that the forward contracts and options were in relation to underlying financial assets of the Appellant that were outstanding as at March 2009. 5.3. The Ld AO and the honorable DRP have erred in law and on facts in holding that the MTM loss of INR 684,273,980 is a speculative loss as envisaged under section 43(5) of the Act and is to be assessed separately as profit or loss from speculation. 5.4. The Ld AO and the honorable DRP have erred in law and on facts in concluding that the transaction was speculative in nature merely by relying on the internal instruction No 3/2010 dated March 23, 3010 issued by the Central Board of Direct Taxes ("CBDT"). 5.5. The Ld AO and the honorable DRP have erred in law and on facts in holding that the principles enunciated by the....
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....allowance is sustainable, the Ld AO has erred in law and on facts in not adhering to the directions of the honorable DRP to allocate the amount of disallowance amongst the various STPI units and computing the correct amount of relief under section 10A of the Act for each unit. 7. Disallowance under section 14A of the Act 7.1. The Ld AO and the honorable DRP have erred in law and on facts in disallowing the amount of Rs 2,740,203 under the provisions of section 14A of the Act by invoking the provisions of Rule 8D of the Income-tax Rules, 1962 without providing any cogent reasons and making conclusions on the basis of conjectures and surmises and without considering the relevant facts and submissions. 7.2. The Ld AO and the honorable DRP have erred in law and on facts in not appreciating that disallowance under section 14A of the Act requires that such expense should have an inherent nexus with an exempt income. 7.3. Without prejudice to the above objection, in relation to the additional disallowance of Rs 2,740,203 under section 14A of the Act, the Ld AO and the honorable DRP have erred in not appreciating the fact that such disallowance should ha....
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....the Buy-back of shares by the Appellant and the consequent secondary adjustment of the notional interest. 3. The Ld Transfer Pricing Officer ("TPO") / AO has erred in law and on facts and circumstances of the case, by invoking provisions of section 92C of the Act and rule 10Bof the Income tax Rules, 1962 for buyback of shares in the absence of income accruing to the Company. 4. The Ld TPO / AO has erred in law and on facts and circumstances of the case, in considering that the alleged excess payment made by the Appellant to its shareholders on account of Buy-back of its own shares is in the nature of income to the Appellant and further erred in considering notional interest on the alleged excess amount of buyback of shares as income of the Appellant. The said grounds are independent and without prejudice to the other grounds of appeal preferred by the Appellant. The Appellant craves leave to add, alter, vary, omit, substitute or amend the above ground of appeal, at any time before or at, the time of hearing, of the appeal, so as to enable the Honorable Income Tax Appellate Tribunal to decide this appeal according to law. The Appellant do....
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....hat no independent party would pay royalty under similar circumstances. Therefore, the TPO determined the ALP of the international transaction in respect of "royalty" as Nil by applying test which he felt were relevant in determining the ALP of intra-group services. Accordingly, an amount of Rs.3,83,20,329 paid by the assessee to PSE was treated as ALP adjustment. 4.2 The DRP upheld the order of the TPO. The brief finding of the DRP are as follows:- (i) The DRP held that the action of the assessee in aggregating the transaction of royalty with the software development services, for benchmarking was not in accordance with law. The DRP observed that the TNMM applied at enterprise level does not follow that each class of transaction including royalty paid are at arm's length. (ii) The DRP has further observed that the assessee has not submitted any documentary evidence to justify receipt of service. The DRP therefore held that the assessee has not discharged the obligation to support the arm's length nature of transaction and hence, the arm's length price is taken as NIL using Comparable Uncontrolled Price (CUP) as MAM. (iii) The DRP relied on the Tribuna....
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....UP. In this regard, reliance is placed on the following judicial pronouncements, which according to the learned AR, have upheld this principle:- (i) CIT v. SGS India Pvt. Ltd. (ITA No.1807 of 2013) (Bombay High Court) (ii) M/s.Ghyssen Krupp Industries India (P) Ltd v. ACIT (ITA No.6460/Mum/2012) (Mum ITAT) (iii) ACIT v. Dow Agrosciences India (P) Ltd. v. ACIT (2016) 76 taxmann.com 124 (Mumbai-Trib.) (iv) Dow Agrosciences India (P) Ltd. v. ACIT (ITA No.6618/Mum/2018) (Mum ITAT) - para 11 (internal page 13 - reliance on earlier ITAT order for AY 2011-12) 4.4.2 Lastly, it was contended that the TPO erred in concluding the ALP of the transaction to be NIL in totally arbitrary manner. It was stated that even if the TPO were to reject bench marking of the assessee, the TPO has to necessarily adopt one of the methods prescribed u/s 92C r.w.r 10B of the I.T.Rules, 1962. It was contended that if the TPO were to adopt CUP method as he purportedly to do, the TPO ought to have identified similar uncontrolled transaction to benchmark the royalty payment and cannot conclude the same to be NIL. 4.5 The learned Departmental Representative, on the other han....
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....r provision of software development and related services. OECD TP guidelines were relied on by the assessee in support of the above analysis. 4.6.1 The TPO stated that out of total revenues of Rs. 433 crore, sales to AE stands at Rs. 303 crore. Hence, the TPO stated that brand name of Perot used by the assessee does not deserves a separate payment in the form of Royalty. The TPO also stated that the assessee has not justified how other companies under similar circumstances have paid royalty and no benchmarking analysis has been provided in this regard to justify arms length nature of this transaction. The TPO determined the ALP of royalty paid at NIL for the reason that no independent party would have paid for royalty under similar circumstances. 4.6.2 The DRP held that the assessee should have separately analysed the transaction of payment of royalty. It was held that the combined approach i.e., aggregation of the royalty transaction with other international transactions is possible only when they cannot be evaluated on separate basis. The ALP of royalty paid was taken as NIL using CUP (comparable uncontrolled price) method as the most appropriate method. The decision of the....
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....4 ITR 118 held that the TNMM is a preferred TP Method for determination of ALP of international transactions for its proficiency, convenience and reliability. Paras 89 and 90 thereof reads as under:- "89. The TNM Method has seen a transition from a disfavoured comparable method, to possibly the most appropriate Transfer Pricing method due to ease and flexibility of applying the compatibility criteria and enhanced availability of comparables. Net profit record/data is assessable and within reach. It is readily and easily available. entity-wise in the form of audited accounts. The TNM Method is a preferred transfer pricing arm's length principle for its proficiency, convenience and reliability. Ideally, in TNM Method preference should be given to internal or in-house comparables. In absence of internal comparables, the taxpayer can and would need to rely upon external comparables. i.e. comparable transactions by independent enterprises. For several reasons, database providers, it is apparent. have the requisite information and data of external comparables to enable comparability analysis of the controlled and uncontrolled transactions with necessary adjustment to obtain ....
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.... would he also in consonance with Rule 10B(1)(e), which mandates only arriving at the net profit margin by comparing the profits and loss account of the tested party with the comparable. The TNM Method proceeds on the assumption that functions, assets and risk being broadly similar and once suitable adjustments have been made all things get taken into account and stand reconciled when computing the net profit margin.Once the comparables pass the functional analysis test and adjustments have been made, then the profit margin as declared when matches with the comparables would result in affirmation of the transfer price as the arm's length price. Then to make a comparison of a horizontal item without segregation would be impermissible." 4.6.8 The co-ordinate bench in the case of JCIT v Toyota Kirloskar Motor P Ltd in ITA No. 2016/B/2018 & 1972/B/2018 decision dated 18.8.2021 relied on the above decision and rejected the separate computation of ALP of royalty payment by the revenue and held as under: "11.4 We have heard rival submissions and perused the material on record. The AO/TPO had made TP adjustment for shortfall in margins as well as royalty. The royalty adjustment....
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....,73,000 12,47,94,000 The assessee did not charge any interest for the overdue receivable from its customers, both from AEs and third parties. 5.1 The TPO treated the above debts outstanding for a period of more than six months in respect of transaction with assessee's AEs as a deemed loan and applied CUP method to benchmark the transaction. The TPO had obtained details from CRISIL u/s 133(6) of the I.T.Act and applied interest rate of corporate bond rates as the ALP. The TPO on adhoc basis held that receivables due from AEs were deemed BBB rated loan that had a yield of 20% more than BBB rated corporate bonds for five years. On this basis, the TPO arrived at a rate of 17.22 % as the arm's length interest rate chargeable for the relevant assessment year. The computation of arm's length for the outstanding dues from the AEs (beyond six months) are as follows:- Particulars Annualized average yield for FY 2008-09 for BBB rated bonds as per CRISIL date (refer page 10 of TP order) 14.35 per cent Yield considered by the Ld.TPO to be 20 per cent more than the BBB rated bond 17.22 per cent Outstanding AE receivables exceeding six months Rs.10,86,19,00....
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....missions raised by the assessee are as follows:- (i) Section 92B(1) of the I.T.Act can have no application as an unpaid purchase price is not a loan. The unpaid purchase price is a consequence of the international transaction of rendering of software service. In this regard, reliance was placed on the order of the Tribunal in Nimbus Communications (9 taxmann.com 26) and Goldstar (65 SOT 259). (ii) The transaction of outstanding debtors cannot be treated as a separate international transaction and examined independently as it is inextricably linked to transaction of rendition of services. In this regard, the Hon'ble Delhi High Court in the case of Kusum Healthcare Pvt. Ltd. (ITA No.765/2016) (page 1456-1460 of the case law compilation) has affirmed the said principle. (iii) Notwithstanding the above, the amendment to section 92B has been made by Finance Act, 2012 with prospective effect and hence cannot apply retrospectively for the subject A.Y. 2009-2010. (iv) Further, even if the amendment were to apply retrospectively, clause (c) can apply only in case where the agreement provides for charge of interest beyond the credit period which is not so,....
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....e TPO at 24.32%. 5.8 The NPM of the assessee was within arm's length range even after working out the comparability adjustment on account of working capital. The working capital adjustment available to the assessee on comparison with all the comparable companies selected by the TPO would be (-)6.94 per cent (refer page 1350 to paper book Vol.1). Accordingly, the ALP margin post working capital works out to be 31.25 per cent which is lower than the margin of the assessee at 33.18 per cent (refer page 4 of TP order). Accordingly, the margin of the assessee includes the compensation for the credit period in connection with the delayed receivables and hence there is no need for a separate adjustment on account of interest should have been charged on debtors outstanding for more than six months. This is exactly in consonance with the direction of the DRP. The DRP has rightly held that if after working capital adjustment the margin of the assessee is within ALP range, no separate adjustment is required. Therefore, we fully endorse the directions of the DRP. Hence, the AO / TPO is directed to examine if the working capital adjusted margin of the assessee corresponding to the internatio....
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....: (vi) The AO, therefore, concluded that the Unit-wise profit and loss account, and the Form 56F issued by independent Chartered Accountant was incorrect; (vii) The Ld. AO concluded that the profit of the Unit-2 was not genuine since the assessee had not maintained Unit-wise softex, bank account copies, purchase orders, invoices, etc; (viii) The AO therefore concluded that it was a clear cut case of splitting up or reconstruction of the business already in existence as per section 10A(2)(ii) of the Act; (ix) The AO also concluded that the invoices raised by the Assessee were not pertaining to any ITeS but rather were pertaining to several other services that did not qualify for tax benefit under section 10A of the Act. 6.3 The assessee being aggrieved by the adjustment proposed in the DAO filed its objections before the DRP. The DRP upheld the order of the Ld. AO and confirmed the disallowance of claim of relief under section 10A of the Act with respect to Unit-2. Pursuant to the DRP's directions, the final assessment order was passed incorporating the addition of Rs.20,59,56,749 proposed in the draft assessment order. 6.4 Being aggrieved b....
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....en established by splitting and reconstruction of business, it was contended by the learned AR that Unit-1 was operating at optimal capacity and continued to do so, even post setting up of the Unit-2. The details of the seating capacity and actual utilization of both units are detailed in page 766 to 770 of the paper book Vol.II. Further, the learned AR relied on the decision of the Hon'ble Karnataka High Court in the case of Fusion Software Engg (P) Ltd. reported in (2012) 18 taxmann.com 57 (Kar.) wherein the Hon'ble Court has held that non-maintenance of separate accounts regarding STP Units and other Units cannot be a ground to deny deduction u/s 10A of the Act, when the assessee is otherwise entitled to the deduction. The learned AR further placed reliance on the observations of the Hon'ble High Court that the AO can presume that a Unit has been split and reconstructed only when it is formed by transfer of more than 20 percent of the plant and machinery from the existing Unit which is not so in the present case. Reliance is also placed on the judgment of the Hon'ble Rajasthan High Court in the case of Sagun Gems (P) Ltd. reported in (2012) 253 CTR 614 (Raj.). 6.5 The learned....
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....2 in support of the contentions made before us. A perusal of the same would show that the capacity of Unit-1 remains intact. We notice that the AO has not examined this issue by considering factual aspects presented before us. Since the A.O. has not examined the details now furnished before us by the assessee, we restore those details to the file of the A.O. for examining them. (c) The next major mistake pointed out by the A.O. is that the Softex forms approved by STPI have reference of Unit-1 only and not unit-2. The Ld. A.R. submitted that various Softex forms issued by STPI authorities consisted of many mistakes. Hence the assessee has got majority of Softex forms corrected and the copies of those corrected forms have been given as additional evidence. He submitted that additional evidence furnished by the assessee is almost equivalent to 73%. He submitted that the assessee has claimed deduction u/s 10A in respect of the profits derived by Unit-2 only. The Ld. A.R further submitted that the assessee could not obtain corrected copies of all Softex forms. He further submitted that majority of the forms have been furnished. He also submitted that more than 10 years have el....
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....he AY 2009-10, the Assessee in its profit and loss account had debited an amount of Rs.68,42,74000 as MTM loss on forward and options contracts. The loss was due to the revaluation of contract value based on exchange rate as on March 31, 2009. The said loss was not on account of actual realization / termination of the contract before the end of FY, but was quantified in respect of outstanding forward and option contracts as at March 31, 2009, based on prevailing forex rate as at March 31, 2009. The said amount of loss was distributed and debited against the STPI units of the assessee in the proportion of turnover of the Units (Refer page 309 of paper book Vol I for the basis of allocation). The assessee in the submission dated December 18,2012 filed before the AO had provided the details with respect to the MTM loss (refer page 253 of paper book Vol.I). 7.2 The A.O. proposed disallowance of MTM losses in draft assessment. The observations of the AO are summarized below:- • Since the loss was on account of foreign exchange derivative transaction, the Ld. AO classified the same as speculative loss as per section 43(5) of the Act; • The AO relied on Circul....
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....ter-company balances, was in accordance with the requirements of AS-11. It was stated that MTM loss is on account of reinstatement of forward and option contracts with banks entered for the purpose of hedging the forex risk on receivables, and hence, was a business loss and not speculative loss. The learned AR submitted that foreign exchange losses pertaining to unexpired forward and the hedge is backed by an underlying contract between two parties. Further, although the forward contract transactions were recorded along with other foreign currency transactions, the same were identifiable and were segregated by the assessee during the relevant assessment year. It was therefore submitted that the contention of the A.O. that no separate accounts are maintained is misplaced. It was further stated that the A.O. has failed to take note of the forward contract confirmation details from JP Morgan Bank, which were furnished before the A.O. vide submissions dated 07.02.2013 and the A.O. has erroneously held that no contracts / confirmations were produced. The learned AR submitted that the judgment of the Hon'ble Apex Court in the case of Woodward Governor India Private Limited (supra) square....
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....ourt in case of CIT Vs. Motorola India Electronics Private Limited 225 taxmann.com 11 (Kar.)) after considering the judgment of Honourable Supreme Court in case of Liberty India v. CIT (supra) has held in para 7 and 8 as under: " 7. The submission of the appellant(s) [assessee(s)] in nutshell was that the amount of duty drawback/DEPB was intended to neutralize the incidence of duty on inputs consumed/utilized in the manufacture of exported goods resulting into increased profits derived from the business of the industrial undertaking which profits qualified for deduction under s. 80-IB. According to the appellant(s) since no excise duty/customs duty was payable on raw materials consumed/utilized in manufacturing goods exported out of India, the duty paid stood refunded under s. 37(2)(xvia) of the Central Excise Act, 1944 and under s. 75 of the Customs Act, 1962 read with Customs, Central Excise Duties and Service-tax Drawback Rules, 1995. 8. On the nature of DEPB it was submitted that the amount of DEPB was granted under Exim Policy issued in terms of powers conferred under s. 5 of the Foreign Trade (Development and Regulation) Act, 1992. According to the appellant....
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....ability to the issue under consideration for the reason that import entitlement/REP licence was granted by the Government on the basis of exports made; the same were granted gratuitously without antecedent cost having being incurred by the industrial undertaking, unlike duty drawback and DEPB, which had direct link to the costs incurred by such industrial undertaking by way of payment of customs/excise duty in respect of duty paid inputs used in the manufacture of goods meant for export and in such circumstances, profit from sale of import entitlements/REP licence was in the nature of windfall and it was in those circumstances, that the apex Court held that source of profit on sale of import entitlements was not the industrial undertaking but the source was the Export Promotion Scheme. According to the appellant(s), in the case of sale of import entitlements/REP licence, the source was the scheme framed by Government of India whereas in the case of DEPB/duty drawback, the source was the fact of payment of duty in respect of inputs consumed/utilized in the manufacture of goods meant for export. That, but for such payments of duty on inputs used in the manufacture of goods meant for ....
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....the Assessee in the tax audit report in Form 3CD had reported that the Assessee had complied with the provisions pertaining to taxes deducted at source. The AO in the draft assessment order proposed to disallow the following amounts under section 40(a)(ia) of the Act for non-deduction of taxes:- S No. Particulars Amount in (Rs.) Comments of AO Rent A 1. Car lease rental 26,64,719 The AO held that car lease rentals attract provisions of TDS 2. Lease rentals for office facilities 83,80,880 The AO disallowed the said amount for nonsubmission of the exemption certificate with respect to payments made to M/s.Roshini Enterprises. Travel and conveyance B 1. Upkeep and maintenance charges 81,22,520 The AO has observed that the assessee has not maintained party wise ledger account of maintenance charges, in absence of evidences, the AO has drawn adverse inference that TDS provisions are attracted on these payments. Repairs and Maintenance C 1. System software maintenance 42,03,535 The AO has concluded that TDS provisions are at....
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....sion are as follows:- • The assessee submits that as per clause 27(b) of the Tax Audit Report for the relevant assessment year, the assessee had not committed any default with respect to TDS provisions. • The assessee further submits that it had contended before the AO that due to significant transactions, it was not possible to provide a reconciliation at a transaction level. The assessee had however provided a broad reconciliation of the various expense codes, the nature of expenses and the corresponding tax withholding / reasons as to why tax withholding was not applicable on certain expenses. • The assessee submits that the maintenance expenses were incurred in relation to the corporate apartments taken on lease for the purposes of accommodating employees / business associates. The maintenance charges were therefore in relation to the business of the assessee. • Alternatively, it was contended that if disallowance u/s 40(a)(ia) of the I.T.Act is upheld, the AO may be directed to allow the expenses over STPI units of the assessee, while computing relief u/s 10A of the Act. 8.4 The learned DR supported the orders of the Incom....
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....cordance with the following formula, namely A x B/C Rule 8D(2)(ii) Where A = amount of expenditure by way of interest other than the amount of interest included in clause (i) incurred during the previous year NIL B = the average value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and last day of the previous year. NA C = the average of total assets as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year. A x B/C = NIL Rule 8D(2(iii) An amount equal to one-half percent of the average of the value of the investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee on the first day and the last day of the previous year. 0.5 percent of Rs.54,80,40,500 Refer computation below 27,40,203 Total 30,90,202 Less : Amount suo moto disallowed by the assessee 3,50,000 T....
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....sallowed by the assessee. The assessee had not incurred any other expenditure to earn dividend income. • The assessee further submits that it had not incurred any brokerage charges, demat charges, etc. in respect of its investments. • Some of the mutual fund investments are in growth funds. • The assessee therefore submits that dividend income is in the nature of passive / dormant income and there is neither any effort required to earn such income nor is there any expenditure incurred which has a direct nexus with earning such income. 9.6 The learned DR supported the orders of the Income Tax Authorities. 9.7 We have heard rival submissions and perused the material on record. The amount of expenditure directly relating to income which does not form part of total income, was voluntarily disallowed by assessee [amounting to Rs.3,50,000 - Rule 8D(2)(i)]. There is no disallowance made by the A.O. invoking the provisions of section 14A r.w. Rule 8D(2)(ii). The disallowance made by the A.O. and confirmed by the DRP is sum of Rs.27,40,203 under Rule 8D(2)(iii). As per the order of Special Bench of the Tribunal in the case of Veerat Investments r....
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....med that the transfer pricing provisions are not applicable for buy back of shares in the absence of any income chargeable to tax arising in the hands of the assessee. Without prejudice, it was argued that the benchmarking by the TPO has to be in accordance with the most appropriate method. On merits, it was submitted that the valuation was done as per various methods viz., The Market Approach, Underlying Assets Approach, Price to earnings method and the Book Value Multiple. The above valuations determined the value of shares in the range of Rs. 90 to Rs. 100. The assessee referred to RBI Circular No. 16 dated 4.1 0.2004 in AP (DIR Series) which requires the valuation to be certified by two independent experts and the higher of the two valuations can be considered as the value for the purposes of transfer of shares by a non resident to a resident. The assessee argued that as per rule 10B(2)(d), the laws and Government orders in force is one of the criteria for comparability of an international transaction with an uncontrolled transaction and hence the valuation carried out in accordance with the Exchange control norms is to be accepted for transfer pricing purposes. 11.1 The TPO....
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....of 40 per cent was required to be taken into account as per the said Regulation. The DRP further observed that the discounting factor takes into account the illiquid nature of the stock of closely held company. The TPO therefore considering both - discounting factor and illiquidity discount was incorrect; (vi) The PwC report had determined the PE multiple to be 7.5 which was calculated as a ratio of enterprise value of EBITADA while the earnings per share considered by the TPO from the Chajjed Kedia report was calculated on the basis of earnings after tax (PAT). The DRP therefore held that the computation of the TPO was erroneous. 11.4 As the DRP deleted the TP addition on merits, the objection regarding non application of TP provision on these transactions was not adjudicated. Further, as the TP addition on buy back of shares was deleted, the DRP also deleted the TP addition of Rs.3,98,07,877 for not charging interest in respect of excess amount paid to AE for buy back of shares. 11.5 The Revenue being aggrieved, has raised this issue before the ITAT. The learned DR supported the TPO's order and relied on the grounds. Further, the learned DR relied on the judgment o....